Budget agreement may include IRS cuts that curb plan to crack down on wealthy tax cheats

A congressional budget deal could deflate an IRS effort to pursue wealthy tax cheats.

President Joe Biden added nearly $80 billion in new IRS funding to the Inflation Reduction Act of 2022, money set aside to collect unpaid taxes from the wealthy and to improve the agency’s customer service, among other uses.

Congressional Republicans have been chipping away at the windfall. In the latest deal, a bipartisan budget agreement announced Sunday, the IRS would lose $20 billion of the new funding in 2024, Politico reports.

Republican lawmakers have pushed for the IRS cuts, arguing that a campaign of audits would hurt small businesses and regular Americans.

Last spring, Biden and then-House Speaker Kevin McCarthy had agreed to reduce the appropriation by $20 billion.

What changed over the weekend was the timing of the cuts. According to Politico, the reduction has been “frontloaded” to this year rather than phased in over two.

The IRS wants to go after tax cheats who earn more than $400,000 a year

How would the deal affect ordinary taxpayers? Not much, perhaps, unless you’re in favor of more audits of the rich.

Congress has trimmed the tax agency’s budget over the years, making it harder for the IRS to audit taxpayers who don’t actually pay taxes.

The new money will empower the IRS to go after tax cheats earning more than $400,000 a year, the agency says, a threshold that roughly corresponds to the top 2% of American earners.

Less funding means fewer audits, tax experts say.

“By making these cuts, it makes it harder for the IRS to go after these people,” said David Kass, executive director of the nonprofit Americans for Tax Fairness.

Biden: $80B in new IRS funds would leverage up to $400B in unpaid taxes

Biden contends the nearly $80 billion would leverage as much as $400 billion over a decade in unpaid taxes from the wealthy.

Some of the new money is intended to improve IRS technology, reduce wait times for people who call the agency, and process refunds more quickly.

Those efforts enjoy bipartisan support. Tax experts say it’s unlikely congressional Republicans would seek cuts that diminish IRS customer service or delay technological enhancements. The lawmakers have focused on preventing the agency from stepping up audits of affluent Americans, saying the enforcement would harm ordinary taxpayers.

IRS officials counter that middle-income Americans will face no higher risk of audit in the years to come, with or without new funding.

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Advocates of a better-funded IRS say a $20 billion cut could hobble the agency’s ability to serve regular taxpayers.

“You can’t cut $20 billion and have no impact on customer service,” Kass said.

Daniel de Visé covers personal finance for USA TODAY.